Datta Dayadhvam Damyata Shantih Shantih Shantih

On Oil, Food and Sweet Sweet Candy

With this video now making the rounds, I have to say that I honestly am tired of hearing candidates on whirlwind tours of the United States talking about how we can’t run our air conditioners or drive big SUVs.

The fact of the matter is that the amount of oil on the planet is not the issue. The issues are

–Where we get the oil.
–How we get the oil.
–Who pays for getting the oil.
–What they do with the oil they’ve paid to get.
–What happens to the oil to turn it into the products we need it to become.

Where We Get The Oil

If you grew your own tomatoes instead of buying them from the supermarket, the tomatoes you eat would be cheaper. It’s the same for oil. Oil we drill here or in our territory doesn’t cost us as much because we don’t have to pay as many middle men.

How We Get The Oil

Walk into any food store–Krogers, Whole Foods, Fresh Market–and take a look at the mushrooms. The plain old white ones that grow like crazy right out in the open are the cheapest. The exotic ones which grow under trees or in special soil or only at certain times of the year can cost megabucks, because they’re harder to get. The same goes for oil. As we exhaust the supply of easy-to-find oil, we have to go digging deeper and that costs more.

Who Pays For Getting The Oil & What They Do With The Oil They’ve Paid To Get

When you were a kid you may have gone grocery shopping with your mother. I did, and getting a basic candy bar was a big treat that happened very rarely. She controlled what we bought at the supermarket, and I only got a candy bar if she was willing to pay for it. Even though there was candy all over the freakin’ store, to me it seemed like a rare commodity because I could only get one if she was willing to buy it for me.

As I got older and had some of my own money from babysitting, working for the phone company and typing other people’s research papers I could buy my own candy bars. I went to a small school, though, and we didn’t have food vending machines. Occasionally the band or the Senior Class would sell candy bars at the lunch break. Even though I could theoretically get a candy bar for a quarter, I had no way to get to the grocery store so I would pay those folks a dollar a bar. I had no choice.

Oil is like that. As it gets harder to get (see #2), the money to go drilling is coming from banks and investors. As banking regulations changed in the late 90s, the way investment bankers like Morgan Stanley and Goldman Sachs made their money had to change. By the early 2000s they were doing two things–investing in oil exploration companies and investing in oil futures. They did this because they wanted to get more out of it than they put into it.

Continuing with the grocery store analogy–those banks gave money to certain companies to go out and buy up as many candy bars as possible. They then bet that the price of candy would go up. And they kept all the candy bars so that it would appear that there was no candy left. And then they said “hey! We have candy. But now it costs two dollars a bar instead of a quarter.” And so they made money in two ways. They make money selling the candy to people at a higher price and they made money off their side bet when they bet that candy would go up.

Meanwhile the politicians are proposing either that we start making cookies (both Republicans and Democrats), open a new candy factory (the Republicans) or eat a lot less candy (the Democrats). Currently no one is going to the banks and telling them to stop buying all the candy bars directly from the factory, stop hording all the candy bars or stop selling the candy bars to everyone at such a stupidly high price. Pissing off the little guy by taking away his candy doesn’t cost you that many campaign contributions.

Here’s where I side with the Republicans, and here’s why. By suggesting we eat less candy the Democrats are expecting that reduction in demand to cause the price to go down. And theoretically it would, but it would also not introduce any competition into the marketplace. So the guys who owned all the candy would still own all the candy and still be buddies with the dudes at the factory who sell them all the candy first.

But the Republican line about opening a new candy factory….that would also theoretically cause the price to drop by increasing the supply. BUT–a new candy factory means that the guys at the other candy factory have some competition.

Me, I like a healthy bit of competition in the economy. Plus I also hate to be told that I can’t have something. If I decide to eat less candy–something I’ve been doing for years–good for me. But tell me I can’t have candy and you’ve got a fight on your hands. It’s all about control. The Republican plan gives the consumer a slight edge in the control game.

What Happens To The Oil

This is the bit no one seems to be talking about. We’re all so worried about getting it, we don’t talk about what we do when we have it. If you got one bag of chocolate chips at the grocery store for a dollar and then turned it into a batch of chocolate chip cookies, that wouldn’t be too much of a hassle. You could sell those cookies at a bake sale for a dime a piece and still make money. But if you had to turn those chocolate chips into ten different cookie recipes, all with slightly different ingredients, then you’d have a problem. It’d be a big hassle, take a lot more of your time and cost a lot more because you had to get so many extras. After all, some people want coconut, some want walnuts and some like raisins. It’s a pain and so you’d charge more at that bake sale. You’d charge even more if you had to make all of the cookies in one kitchen and didn’t have friends helping you out.

That’s what’s happening with oil. For nearly every one of the fifty states there’s a different “recipe” for gasoline. With so few refineries to make the batches of oil, it takes longer and is a more costly process as the dishes need to be rewashed, etc. (Keeping with the whole cooking analogy.)

In all the talk about drilling, I don’t here much talk about standardising fuels across state lines or opening new refineries. That’d help, too.

Now I’ve gone on way too long, I’m sure. But hopefully this makes more sense than just my saying “I’m an open drilling, standardising, free marketer in the oil debate.”

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12 Responses

Here’s where I disagree with open drilling using your candy analogy. The Democrats are suggesting eating less candy, but that’s not it. They’re also suggesting that we add fruits, baked goods, and other sweet treats to our diets (ones that also happen to be healthier than the candy).

The Republicans on the other hand, want to open a new candy store, but they want to open it in a run down one-room building with only the sugar left in the warehouse out back. Yes, it theoretically would provide both an increased supply of candy and competition to the other candy shops, but only after years of renovation and more years making up the expense of that renovation, and even once that’s done, the room is so small that it will barely be able to produce enough candy offer any real competition with Hershey’s and Willy Wonka. Beyond that, it’ll only be a matter of a couple of years (at best, months at worst) before all that sugar is gone, and we’ll have to find a new abandoned run-down building with a warehouse of sugar behind it, and start the whole process over again. To compound things, we’ll need wipe out the Oompla Loompa’s that were living in our abandoned candy factory to make room for the candy making equipment.

They’re also suggesting that we add fruits, baked goods, and other sweet treats to our diets (ones that also happen to be healthier than the candy).

but…but…but…

did you skim the part where I said:

Meanwhile the politicians are proposing either that we start making cookies (both Republicans and Democrats),

The “cookies” in this case are alternative fuels. Both camps are pushing those, to be fair. Your analogy does work better because of the number and variety of alternative fuels, which opens up another can of worms.

You know how much I admire your writing skills, and I think this you have one of the sharpest minds I’ve ever known…but this whole analogy is flawed, from top to bottom, and it feels like you don’t quite believe it yourself.

You’ve left no consideration for collusion among those that control or own the chocolate chips in your “free-market” utopia. The chips will be sold to the highest bidder, the chips will not go down in price because we “got it cheaper.”

I won’t even delve into why fossil fuels should be part of the commons, but I will ask what constitutes “cheaper”? Is the cost of environmental damage factored in?

If we continue to produce oil from shale or what have you, will this generation everreally be compelled to find alternatives?

Upon what do you base your assertion that there is plenty of oil left in the world? For every scientific study you produce (usually funded by think tanks with a political agenda) that says oil is still bountiful, I can produce a study that says we are rapidly running out. Lets say its divided evenly…50/50 split You willing to live with those odds?

Upon what do you base your assertion that there is plenty of oil left in the world?

Ooops. I took out two paragraphs in an effort to make this thing shorter (ha). In retrospect I should have left one of them in.

I don’t believe there is “plenty” of oil left. I also don’t believe we’ll be out of oil by 2011 or whatever year some folks have come up with now. As I see it, Earth is only so big. Every time we use some oil there is less left in Earth. Earth is not making any more of it–unlike, say, trees.

For every scientific study you produce (usually funded by think tanks with a political agenda) that says oil is still bountiful, I can produce a study that says we are rapidly running out.

That’s why I’m not addressing that issue. Because there is no concrete way to do so.

You’ve left no consideration for collusion among those that control or own the chocolate chips in your “free-market” utopia. The chips will be sold to the highest bidder, the chips will not go down in price because we “got it cheaper.”

Nor do I leave any consideration for the fact that now there are new kids moving into town who love chocolate chips and so they’re always up at the crack of dawn buying all of the chocolate chips first and their parents give then a bigger allowance so they can have more chocolate chips. And since they have so many chocolate chips they do stupid things with them, like have chocolate chip fights.

I didn’t include those things in the analogy because our politicians can’t control any of those things. The people we elect can’t make more oil be in the ground for us to find. They can’t make China stop buying up whole fields and then using it irresponsibly.

This analogy is purely about what we can control as consumers and voters, and what effect our elected people will have on the price of gas at the pump. I went in that direction because that was what the video was about.

You know how much I admire your writing skills, and I think this you have one of the sharpest minds I’ve ever known

Dolphin and Mack made good points…there are some flaws here and it raises a point that’s been bothering me in this whole push to drill in Alaska and in the Gulf of Mexico (which Tennessee’s Republican congressmen support). The Republicans are acting like it’s the answer when it’s not. As Mack pointed out, the domestic oil will still be gathered and refined by energy companies and will go out on the same open market as the OPEC and Venezuelan oil. The only way to make that oil cheaper for Americans is to regulate where our oil goes and, well, that just ain’t the conservative way of doing things, is it? No.

And yes, the Republicans have been talking about alternative fuels (let’s just say it–ethanol) for a while. Because they and some other Americans have a vested financial interest in it. I don’t support it. Much like I don’t support the notion of feeding food to other, less efficient forms of food, I don’t support putting food we could eat into our gas tanks (though I know that ethanol corn isn’t really fit for consumption).

So, the answer is not just shifting our use to alternative fuels, but reducing our need for energy that we can generate individually or maintain domestically (ie, solar, wind, and other types of power–yes, maybe even nuclear).

jim – believe it or not GM is leading the way. The Volt is going to be the greatest thing since sliced bread. I can’t afford the first wave next year at 40K, but in a couple of years, once, they get commoditized, one of those puppies will be mine.

The concept is actually quite simple (and ingenious). The very small gasoline engine is not part of the drivetrain. Its sole purpose is to recharge the batteries. If you drive under 40 miles a day (which I do), you use NO gasoline at all. On top of that, if you are on a trip, you can travel 640 miles on a tank of gas.

For the record, this isn’t entirely accurate (though it is practically accurate, since the rate of consumption so vastly outstrips the production rate). If we run out, we’d need to wait 2-4 billion years or so for the Earth to replenish our supply, but over time it would. I’m not being nitpicky, and it doesn’t effect your point, but just keepign the facts in line.

And yes, Republicans grudgingly call for alternative energy sources (one or two of them are not even so grudgingly about it), but it’s always with a desire for oil hanging over head. They’re like the shop owners continue to hand the kids candy while telling them it’d be better if they ate something else.

My only crotchedy comment is that I remember all this same rhetoric and crap from government and politicans in the late 70’s and nothing has changed. My 13 year old car gets better gas mileage than a lot of the flexfuel and hybrids that are being touted with such great mileage now(spend your money, be patriotic, buy a new car!)

So much of this so-called shortage/crisis is marketing, market control, speculation and profiteering (Enron loophole for commodities trading). Refineries are the bottleneck in this whole process and it doesn’t matter how much oil supply you have or where it comes from because the companies that own the refineries make the bulk of the profits in the industry. OPEC just sells the crude.

Are there any US owned refineries any more? I’m willing to bet not. Adding US oil to the world oil market will still not help in the long run, no matter what the source.

Part of the problem is that we aren’t, right now, part of a free-market system as envisaged by Adam Smith. Smith’s free market was self-regulated by enlightened self-interest, which explicitly included long-range thinking (reinvestment of short-term profits for long-term gain, etc.). But our economy now is (for a bunch of reasons) self-regulated by the idea of maximizing short-term profits. This isn’t a mindset that fosters innovation (which needs a lot of investment for R&D, retooling factories or building new ones, etc.). And while there are genuinely a lot of short-term reasons to build a new candy factory, any kind of long-term thinking says that that’s not the way to go.

Writers’ Advice

"Read, read, read. Read everything -- trash, classics, good and bad, and see how they do it. Just like a carpenter who works as an apprentice and studies the master. Read! You'll absorb it.
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